Employment and Labor Law

Contact: Steve Schneider and Amr Shabaik

Internships have traditionally been used by companies in various industries to allow students to gain experience and potential entry into competitive fields. Recently, a surge of wage and hour class and collective claims have been causing employers to reconsider unpaid intern programs.

In Glatt v. Fox Searchlight Pictures, Inc., a federal district court in New York decided that Fox Searchlight Pictures, Inc. had violated federal and New York minimum wage laws by not paying interns who had worked on its film “Black Swan” and at its corporate offices. The interns alleged that they performed menial tasks, such as retrieving lunch, which should have been performed by paid employees. The judge relied on the U.S. Department of Labor’s (“DOL”) 6-factor test and ruled that considering the totality of the circumstances, the interns should have been classified as “employees” under New York law and the U.S. Fair Labor Standards Act (“FLSA”). The district court also certified a class of New York interns and a collective nationwide action of interns working at Fox Searchlight (“Fox”).

The decisions in Fox Searchlight and a companion case, Wang v. The Hearst Corp., were appealed, and the recent decisions by the U.S. Court of Appeals for the Second Circuit have provided potential relief to employers concerning unpaid internship programs. Glatt v. Fox Searchlight Pictures, Inc., 2015 U.S. App. LEXIS 11435 (2d Cir. N.Y. July 2, 2015); Xuedan Wang v. The Hearst Corp., 2015 U.S. App. LEXIS 11516 (2d Cir. N.Y. July 2, 2015)

GLATT v. FOX SEARCHLIGHT PICTURES, INC.

On appeal, the Second Circuit vacated the district court’s ruling that the interns were employees and its certification of the class and collective actions. Significantly, the Court of Appeals rejected the plaintiffs’ proposed test that interns should be considered employees whenever the employer receives an immediate advantage from their work. The Court of Appeals also declined to defer to the DOL’s 6-part test for assessing whether an employment relationship exists, stating that the DOL’s test was “too rigid” and unpersuasive.

Instead, the appellate court accepted Fox’s more nuanced “primary beneficiary” test that considers the totality of the circumstances, under which an employment relationship will not be found if the tangible and intangible benefits provided to the intern are greater than the intern’s contribution to the employer’s operation. The Court of Appeals outlined a non-exhaustive set of factors to be considered in determining whether the intern, or the employer, is the primary beneficiary of the relationship. Those factors include:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee;
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment;
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit;
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar;
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning;
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees, while providing significant educational benefits to the intern; and
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The appellate court indicated that this approach reflects a central feature of the modern internship – the relationship between the internship and the intern’s formal education. The Court of Appeals noted that the purpose of a bona-fide internship is to integrate classroom learning with practical skill development in a real-world setting. By focusing on the educational aspects of the internship, the appellate court’s approach “better reflects the role of internships in today’s economy than the DOL factors…”

The Court of Appeals also reversed the district court’s granting of the plaintiffs’ motion to certify a class of unpaid interns, holding that the plaintiffs failed to show that “questions of law or fact common to class members predominate over any questions affecting only individual members…” given that the question of an intern’s employment status is a highly individualized inquiry. The common evidence provided by the plaintiffs “did not help answer whether a given internship was tied to an education program, whether and what type of training the intern received, whether the intern continued to work beyond the primary period of learning, or the many other questions that are relevant to each class member’s case.” The appellate court for similar reasons also vacated the lower court’s conditional certification of the plaintiffs’ FLSA collective action.

WANG v. THE HEARST CORP.

The companion case of Wang v. The Hearst Corp. dealt with plaintiffs who worked as unpaid interns at various magazines. The Court of Appeals similarly vacated the district court’s denial of the employer’s motion for partial summary judgment on the employee issue, and remanded the case for application of the above-listed seven factors in deciding whether the plaintiffs’ established that they were in fact FLSA employees. The appellate court also affirmed the lower court’s denial of class certification given that common questions did not predominate over individual ones.